June 3 (Bloomberg) -- Rio Tinto Group is pursuing an
initial public offering of its gem unit, the world’s largest
supplier of natural colored diamonds, after failing to find a
buyer, according to a person familiar with the matter.

Rio hired Morgan Stanley to oversee an IPO in London, the
person said, asking not to be identified because the process is
private. The London-based company is still open to offers for
the operations, the person said. Rio has been considering
divesting the assets since March last year, saying they no
longer fit with its strategy.

The unit, the world’s third-biggest producer of rough
diamonds with mines in Canada, Australia and Zimbabwe, may be
worth about $2.2 billion, Deutsche Bank AG said in a March 11
report. Rio Tinto has also announced the potential sale of its
Pacific Aluminum unit and is seeking to sell its Canadian iron
ore operations, a person close to the matter said in March.

“Rio has been trying to get out of diamonds for a very
long time,” Evan Lucas, a markets strategist at IG Ltd. in
Melbourne, said by phone. “Looking to do an IPO suggests that
they haven’t been able to find a private buyer.”

Most Value

The decision on a whole or partial sale of the diamond
operations or a separate listing would depend on which offers
the most value to its shareholders, Alan Davies, chief executive
officer of diamonds and minerals said in April.

“It’s a good business in itself,” said IG’s Lucas. “It’s
probably too small to be a real player within their portfolio
makeup. It’s a very specific niche market.”

Rio, the world’s second-largest mining company, is working
on asset sales as well as cutting staff as waning global demand
for commodities is crimping revenue across the sector. The plans
for a possible London listing were reported yesterday by Sky
News.

BHP Billiton and Rio Tinto are leading global asset sales
by mining companies disposal and may sell businesses or stakes
in mines for as much as $35 billion, according to a March report
by Deutsche Bank AG.

Glencore Xstrata Plc and private-equity firm Blackstone
Group LP are considering bids for Rio’s 59 percent in Canada’s
Iron Ore Co., the Wall Street Journal reported yesterday citing
unidentified people familiar with the matter. The stake may be
worth about $4 billion, the people said according to the paper.